McCarthy boys prepare to buy back firm that father founded

Banks bed in at struggling retirement home builder, but family is set to bid for a third time

The family that founded McCarthy & Stone, the heavily indebted retirement homes builder poised to go into administration, is preparing a third tilt to buy back the company.

The Bournemouth-based firm, which was taken private by a consortium led by Scottish philanthropist Sir Tom Hunter in 2006, is collapsing under a £900m debt burden. The family, which runs Churchill Retirement Living, tried to buy the business in 2003, and was one of three bidders that recently failed in bids worth £350m to £400m.

A banking syndicate led by Lloyds Banking Group and HSBC, which provided £700m in loans to the consortium that bought McCarthy & Stone for £1.1bn, turned down the offers. The banks did not want to write off such a huge amount of their investment in what was the country's most profitable housebuilder before the credit crunch. A further £200m was lent by smaller lenders.

The banks have instead decided to swap £200m of their loans for control of the company, once it has gone into administration in the next few weeks.

This debt-for-equity swap, which will leave £500m of debt to repay, is criticised by restructuring experts. A senior adviser involved in the situation said the company, once it is out of administration, will struggle to repay that debt and interest, given the current housing market. The adviser added: "How does management think it can service half a billion pounds of debt in this market?"

Churchill, which has a stronger balance sheet, would have merged with McCarthy & Stone to create a market giant. Spencer McCarthy, who runs Churchill with his brother Clinton, hinted that he believes McCarthy & Stone's rescue plan is inadequate, and they will probably bid again by 2011.

Mr McCarthy said: "I was very disappointed by the decision of the banks [to not accept any of the bids], but I do welcome their approach to continue with £500m on the balance sheet.

"This means that there is the opportunity to come back later on in a year or two."

Mr McCarthy's father, John, co-founded McCarthy & Stone, selling the last big chunk of his shares for £74m in 2004.

The share sale came one year after the family's first attempt to regain control of McCarthy & Stone, which was rebuffed for undervaluing the company. John McCarthy was chairman at the time. In 2004, Spencer McCarthy told trade magazine Building "Never say never" to another bid for the company.

Private equity group Oaktree and property entrepreneurs the Reuben brothers were the other bidders for the company in a process run by investment bank NM Rothschild. Richard Desmond, the media baron who owns Express Newspapers, also has a small stake in the company.